The Missing Profits of Nations

Thomas Tørsløv (University of Copenhagen), Ludvig Wier (University of Copenhagen)
Gabriel Zucman (UC Berkeley and NBER)


By combining new macroeconomic statistics on the activities of multinational companies
with the national accounts of tax havens and the world’s other countries, we estimate that
close to 40% of multinational profits are shifted to low-tax countries each year. Profit
shifting is highest among U.S. multinationals; the tax revenue losses are largest for the
European Union and developing countries. We show theoretically and empirically that
in the current international tax system, tax authorities of high-tax countries do not have
incentives to combat profit shifting to tax havens. They instead focus their enforcement
effort on relocating profits booked in other high-tax places—in effect stealing revenue from
each other. This policy failure can explain the persistence of profit shifting to low-tax
countries despite the sizable costs involved for high-tax countries. We provide a new cross-
country database of GDP, corporate profits, trade balances, and factor shares corrected for
profit shifting, showing that the global rise of the corporate capital share is significantly

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ICRICTGabriel Zucman